Is Wall Street Disenchanted With Apple?

There are signs that Apple is no longer golden on Wall street, but it's not clear whether they indicate a blip in the company's otherwise remarkably solid performance or a general downward trend. Competitors certainly are eating away at Apple's market domination. On the other hand, its weakened share price could reflect investors taking year-end profits.

These days, it seems Apple can do no right on Wall Street. The latest snub came from Citigroup, which downgraded the company to "neutral" from "buy" on Sunday. More significantly, the price target was dropped by US$100 to a modest $575 per share.

Citi analyst Glen Yueng questioned the strength of the iPhone 5, pointing to cuts Apple made with its suppliers.

It may be that the mystique around the iPhone 5 is diminishing as competing products -- such as Samsung's offerings -- gain momentum, he suggested.

Citi's decision comes amid other worrisome signs for Apple. There is increasing evidence that the iPad mini is eating into the iPad 4's sales. Also, both Walmart and Best Buy are selling the iPhone 5 at reduced prices.

Then there is Apple's stock, which has dropped some 25 percent this year. Indeed, after Citi's announcement it dipped below $500 per share for the first time since the beginning of the year. It rebounded to nearly $534 on Tuesday.

Much Ado About Nothing?

Evidence is mounting that Apple is indeed fallible, but it is hardly time to consign the company to failed status.

"Furthering the bull case for Apple is that its stock is now trading on a price-to-earnings basis at a fraction of what it has in the recent past -- about 20 percent of its P/E earnings ratio five years ago -- but 80 percent of its revenues are from new products released in the past 90 days," he told the E-Commerce Times.

An Apple TV may be coming soon, Estadt noted, and some forecasts have called for sales of up to 156 million units in the first year of its release.

The Competitive Factor

The Apple TV is an exception in that it will be an entirely new product for Apple and a space in which there is not much competition -- at least not yet. It can't be ignored that much of Apple's product line consists of upgrades of previous releases, and that there is significant competition for these products.

"The main reason Apple is being downgraded is because there are competitors sprouting up all over the marketplace," Kenneth C. Wisnefski, founder and CEO of
WebiMax, told the E-Commerce Times.

"Years ago no one else made an MP3 player like the iPod. The same goes for mobile and tablet devices. Now Google, Samsung, Motorola and other brands are effectively making smartphone and mobile tablet devices that can compete against Apple and at a lesser price point," he pointed out.

Apple has yet to budge on pricing to any great degree, Wisnefski said. It released the iPad mini at a relatively high price point even though the intention was to compete with smaller and less expensive tablets.

"Going forward, I think we are going to continue to see enhanced competition for some of Apple's more innovative products that can hinder their rate of growth over the next five years," he concluded.

Positive Fundamentals

The bottom line is that while Apple may no longer be uniquely positioned in the consumer electronics industry, its fundamentals are still very positive, said David Cadden, a professor of management at
Quinnipiac University.

"Apple has gone through this type of response several times since 2000," he told the E-Commerce Times.

One positive explanation for its stock fluctuations: The market may be taking year-end profits after a year of huge growth in the stock price, noted Cadden, in anticipation of rising tax rates in 2013.